TFIA Submission

Australia – China Free Trade Agreement Feasibility Study

Executive Summary

In global textile and clothing markets China is by far and away the dominant player
with significant import penetration into most developed and many developing country
markets. The Australian TCF industry is not immune to this global pressure and has
found itself over the last decade or more coping with continued growing market
penetration from Chinese imports. While the major effect of this loss of market share
has been negative it has also led to several companies accessing the Chines e
market either as final good and/or input markets or to base some of their
manufacturing capacity in China.

The TFIA would make the following comments/recommendations in respect to the

feasibility study under the Australia-China Trade and Economic Framework:

• An FTA be opposed between Australia and China until such time as Australian
industry considers that there is a level playing field between the two
economies;
• China must agree and show proof of reducing all identified non-tariff barriers;
• Australian tariffs on Chinese imports should be phased in step with the current
Government policy concerning TCF tariffs post 2005. The industry would
reject outright any broad based immediate zero for zero reductions;
• Tariffs on Australian products imported to China should be phased at a
steeper path than that required of Australia under any agreement;
• Any agreement should consider measures and methods that seek to integrate
the textile and clothing manufacturing sectors of each country including in
investment, distribution networks and supply chains;
• There is only one assessment of a market economy;
• Any agreement must contain specific safeguard measures for the TCF sector
and a robust anti-dumping system;
• The TFIA believes that a regional threshold approach at the principal
manufacturer level is the best form of Rules of Origin for an FTA;
• The Federal Government must make public its “walk away conditions” ahead
of formal negotiations occurring; and
• All economic modelling undertaken for this feasibility study must be provided
for industry review and comment ahead of it being formally presented to the
governments’ of each country.

Introduction

The Council of Textile and Fashion Industries of Australia Limited (TFIA) is the peak
industry body representing firms and organisations covering textile and clothing
activities in Australia.

The industry provides 80,000 jobs1 , sales of more than $7 billion a year and significant
new capital spending each year. Exports are growing rapidly, with TCF&L products
contributing about $3 billion to Australia’s total exports. The industry represents
approximately 10 per cent of all manufacturing establishments in Australia. This
activity produces “feeder” benefits through other sections of the economy. For
instance, it is estimated that each job in TCF&L creates 2.5 to 3 jobs in other sectors.

1
TFIA Business Services

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The industry also provides substantial employment in regional and metropolitan

areas, particularly for females. Much of the workforce is particularly difficult to
redeploy in other sectors of the economy as several studies have shown2.

The Study’s terms of reference are quite broad and cover a wide range of issues.
These, and associated questions raised specifically by the Government and
Government Departments, are dealt with in the remainder of this document. A survey
sent to all members on the agreement and to which the results are referred to
throughout this document is included as an appendix.

The Australian and Chinese TCF Industries and trade between them

In terms of Textiles, Clothing and Footwear, China is the dominant player in the global
market. Its industry dwarfs that of Australia and of many other developed countries.
While it is difficult to obtain accurate figures on its size conservative estimates place
its turnover at $US129 billion annually with a direct workforce of some eight million
people3 . In contrast the Australian TCF manufacturing industry records an annual
turnover of around $US7 billion with a direct workforce of some 80,000 Australians.

Table 1 provides a summary of the trading situation in TCF between Australia and
China based on ABS data for 2002/03.
TABLE 1 – Summary Trade Data – Australia & China
Heading Chinese imports to Australian exports to Trade balance
Australia – (FOB) $A mln China – (FOB) $A mln – (FO B) $A mln
Textiles 653.9 (24%) 29.0 (5.8%) -624.9
Clothing 2,409.4 (70%) 2.7 (0.8%) -2,406.7
Footwear 623.2 (61%) 0.2 (0.4%) -623

As the table illustrates Chinese imports dominate the Australian clothing and footwear
markets and account for just under a quarter of all textile imports. Interestingly
Australian exports to China of textiles account for 6% of all Australian textile exports
and China is the fourth largest destination for these products after New Zealand,
United States and Fiji. In respect to both clothing and footwear China is somewhat
out of the top ten export destinations for Australian exports of these items. While not
shown here the sheer size of China is even more aptly illustrated when this data is
viewed in volume terms.

Charts 1 and 2 shows the share of imports for China, New Zealand, Fiji, India, United
States and a representative Asia 4 for textiles and clothing.
2
For more information see the Productivity Commission’s final report on TCF Assistance, 2003 or
Centre for Work and Society in the Global Era’s report ‘The Long Goodbye: TCF workers,
unemployment and tariff deregulation’, DIIRD Victoria, August 2003
3
This figure is taken from Textiles Intelligence Limited ‘Textile Outlook International’ November-
December 2003 and is very much a conservati ve estimate of the size of the Chinese market.
4
Includes South Korea, Taiwan, Indonesia, Thailand, Hong Kong, Malaysia

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Chart 1 - Imports of Textiles (% share of total imports)

30
25 China
20 New Zealand
15 India
10 United States

5 Asia

0
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Chart 2 - Imports of Clothing (% share of total imports)

80

60 China
New Zealand
40 India
United States
20 Asia

0
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

In respect to imports of textile goods chart 1 shows that while China’s share of
imports has increased since 1997-98 the shares of the other major sources have
remained relatively constant with the selected group of Asian countries having the
largest decline. This illustrates that much of the increase in Chinese textile imports
has been through increased market penetration rather than displacement of other
importers.

Chart 2 displays a mixture of increased penetration and trade diversion away from the
other importing countries in favour of China. The chart also shows the clear and
growing dominance of China in the Australian clothing market. Since 1997-98
Chinese imports have grown at an average rate of around 15% compared with an
average growth rate of around 9% for all clothing imports to Australia.

The TCF&L Market Access report prepared by Werner International in May 2003
showed that China invested the most of any Asian country on spinning, draw
texturing, weaving and knitting equipment. In 2002 China accounted for 70% of draw
texturing, 42.5% of spinning, 82.5% of weaving and 38.5% of knitting machinery
shipments to the Asia/Oceania region. China continues to invest heavily in new
machinery and equipment for the TCF sector which reflects future income for those
companies in China.

Finally Table 2 shows comparative manufacturing costs for textile processes in a

range of countries. This data is based on an annual survey undertaken by the
International Textile Manufacturers Federation and shows the results for China and
the United States. Unfortunately Australia is not included in the study and the United
States is used as a proxy. To aid the comparison a column using the current hourly
rate based on the Australian Federal TCF award is also included.

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TABLE 2 – Cost Comparison Table

(All figures in USD)
China USA* Australia
Cost factors – Weaving
Hourly wage for skilled personnel 1.45 17.97** 14.98`
Hourly wage for machine tenders 0.76 15.76**
Hourly wage for unskilled personnel 0.66 12.50** 11.51``
Cost of electric power (per kwh) 0.07 0.05^
Cost of oil/gas (per kg. / per cu. ft) 0.37 (oil) 0.01^ (gas)
Cost factors – Knitting
Hourly wage for skilled personnel 1.64 16.39** 14.98`
Hourly wage for machine tenders 0.93 13.34**
Hourly wage for unskilled personnel 0.93 11.82** 11.51``
Cost of electric power (per kwh) 0.066 0.045^

Manufacturing costs – Weaving Textured

Yarn (USD per yard of fabric)^^
Labour 0.02 (5%) 0.22 (30%)
Power 0.06 (16%) 0.24
(34%)
Total manufacturing costs 0.37 0.71
Manufacturing costs – Knitting Textured
Yarn (USD per yard of fabric)^^
Labour 0.003 (10%) 0.045 (55%)
Power 0.01 (28%) 0.007 (8%)
Total manufacturing costs 0.04 0.08
*conditions in south-eastern United States
**includes 25% fringe benefits
^rate for industrial user in Greenville County, South Carolina
^^Figure in parentheses is percentage of total costs
`Hourly rate for skill level 5 worker under the award plus 30% on costs
``Hourly rate for a trainee under the award plus 30% on costs
Source – International Textile Manufacturers Federation, ‘International Production Cost Comparison
2003’

While there are a number of caveats on the data in the table it illustrates the
advantages faced by China in manufacturing. The majority of cost difference is due
to labour representing 5-10% of manufacturing costs in China compared with 30-55%
in the United States. The table also supports work undertaken in the May 2003 Market
Access study which showed that out of 40 countries only Bangladesh, Pakistan and
Sri Lanka fac ed a lower per hour operator cost in the production of textiles than China.
However it should be noted that none of these countries have the same infrastructure
or Foreign Direct Investment levels as China.

While China’s anticipated move to a developed economy will see these wage rates
rise this will not be a short-term phenomenon and presents a significant issue and
impediment to having fair and open competition between the countries. The TFIA will
not be drawn in to discussions around labour standards and human rights suffice to
note that China should be expected under any agreement to adopt the same
standards in these areas as exist in Australia.

International Events

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The terms of reference for the study ask for an assessment of recent international
events on any possible Australia-China Free Trade Agreement. The TFIA believes
there are several issues that should be viewed for the textiles and clothing sectors.
The first relates to the current positions and attitudes of the United States and
European Union to China and their potential reactions to the ending of quotas on TCF
products globally.

Both the European Union and United States have expressed a considerable amount
of concern regarding the rapid growth of Chinese imports into their markets. In 2003
the American Textile Manufacturers Institute (ATMI) launched its crisis in textiles
campaign and called on the United States Government to take four steps one of
which was to effectively use the special China WTO textile safeguard. The European
association has also made similar calls to European Commission.

The potential impacts of the United States or the European Union instituting the China
WTO textile safeguard are difficult to quantify. The safeguard is contained in Article
16 of China’s Accession document and allows a WTO member after the necessary
consultation mechanisms have been exhausted to “…withdraw concessions or
otherwise to limit imports only to the extent necessary to prevent or remedy such
market disruption” 5.

Compounding this unc ertainty is the impact that the removal of quotas as required
under the Agreement on Textiles and Clothing on 1 January 2005 will have on the
entire global supply of TCF products.

A final note in respect to International issues is the impact such an agreement with
China would have on Australia’s other bi-lateral trade agreement partners and in
particular, Fiji and New Zealand. Both the SPARTECA (Fiji) and ANZCERTA (New
Zealand) were agreed in the 1980’s and have been beneficial for Australia, Fiji and
New Zealand. Additionally an agreement has recently been concluded to allow
preferential entry for TCF products from LDC’s.

These agreements have significant benefits for those countries through preferential
trade with Australia, however as noted in a separate study into the Fiji TCF industry
(commissioned by the Australian Government), the agreements with Thailand and
Singapore are and will impact trade between Australia and Fiji. The potential for
China to increase its already significant share of Australian markets under any
agreement would impact Fiji and the other LDC’s in the same fashion as those with
Thailand and Singapore. The potential for trade diversion effects of FTA’s to impact
these other aspects of Australia’s Foreign and Trade policy needs to be addressed in
the modelling and analysis of this agreement.

Impact on Industry of Agreement

While the weight of numbers may be skewed in favour of China the TFIA and its
members remain open-minded about the potential offered by China in terms of a
marketplace and supplier of product. However, this potential depends largely on the
removal of both tariff and non-tariff barriers in China.

In consultation with members several noted that the removal of just tariffs by China
would have little impact on their ability to sell into the market. Quite logically it is the
sheer number and magnitude of non-tariff barriers that present the biggest barrier for
5
WTO document WT/MIN(01)/3, Page 21

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trading with China. On the other side they noted that immediate duty free access for
Chinese goods would have a significant net impact on their own domestic markets
(more than 20% fall in their turnover).

To provide some quantifiable figures to the discussion members were asked through
the survey to indicate the impact that an FTA would have on their investment and
employment decisions. For both investment and employment decisions only one
respondent indicated that it would cause them to increase their investment by 10-
15%. All other respondents indicated that it would cause them to decrease their
planned investment and employment with most indicating a decline of 20% or more.

Tariffs are a relatively easy barrier to deal with in an agreement, as they are visible
and quantitatively tradeable between countries. They also have an immediate impact
on the operations of industry in each of the agreement partners. The TFIA would
propose that under any agreement tariffs be phased down as has been
accommodated in other FTA’s with TCF products rather than the more typical and
preferred zero for zero approach of the Australian government. In commenting one
member noted:
“As China already has a 50% plus share of the Australian market
future tariff phasing should conform to [the] post –2005 plan”.

The TFIA would propose that Australian tariffs reduce in step with current government
policy (as shown in table 3). Chinese tariffs would be phased at a steeper rate given
the size of their TCF sector relative to Australia although the TFIA is yet to develop
this in detail. Further the agreement would not allow zero-for-zero reductions except
in specific cases such as those developed in the Australia-United States FTA.
However, application of the manufacturers concession scheme (see below) could
reduce duty paid to zero in some cases.

TABLE 3 – TCF Tariffs 2005-2015 (Current Government Policy)

From 1 January
2005 2010 2015
Clothing & Some Finished Textiles 17.5% 10% 5%
Woven Fabrics, Carpets & Footwear 10% 5% 5%
Sleeping bags, table linen, footwear parts 7.5% 5% 5%
Textiles, yarns 5% 5% 5%

Of more concern to our members and a much more difficult problem for the
Government to deal with are those non-tariff barriers faced by Australian exporters
into China. The following table shows those barriers identified to the TFIA in order of
their importance from the survey:
• Pricing – levels and lack of transparency in calculation;
• Intellectual Property – lack of protection in China of concepts, ideas and
products;
• Bureaucracy – the myriad of officials, agencies and rules required to gain
access to the Chinese market. Many of these occur not at the national level
but at the Provincial level;
• Seller Concentration – the high number of sellers (largely domestic) in
product markets in China requires substantial branding, marketing and
promotional activities along with potential price wars;
• Transport and distribution – foreign companies are required to open at least
two commercial offices in Beijing and in Shanghai to comply with all Chinese

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Administrative requests, particularly the establishment of own distribution

networks;
• Licensing arrangements – like IP issues many companies have found it
difficult to obtain the correct licence to be able to sell goods in China;
• Capital – lack of available capital to access Chinese markets. As noted at the
Melbourne TCF roundtable China does not allow second hand machinery to
be used in China thus increasing the cost for companies seeking to establish
operations either individually or through joint ventures;
• Poor payment from export debtors – to Australian producers of exports
either through not paying or paying well past due for orders; and
• Low labour and input costs – as noted above China enjoys a considerable
cost saving over Australia in terms of labour and equally in many inputs the
TFIA is led to believe that significant price distortion and manipulation occurs.
Of all of these identified non-tariff barriers those relating to pricing and transport were
seen to have the most significant benefit for the Australian industry through their
removal although the TFIA would expect that all NTB’s would be removed under any
agreement.

Additional barriers have been noted by the Werner TCF&L Market Access Study
including:
• Customs procedures – difficult, time-consuming and non-transparent
• Internal taxes and charges – VAT taxes are applied in a discriminatory
manner
• Standards – expensive, time-consuming and discriminatory technical/quality
testing procedures for imported goods compared with domestic products
• Labelling – specific labelling for the Chinese market requires a long series of
information requests – around 11 or so separate items of information

It is interesting to note that these barriers are not only identified by Australian
companies but have also been regularly noted by textile and clothing manufacturers in
many other developed countries particularly the United States and European Union.

In a recent address made in January of this year the President of EURATEX (the
European Industry Association for textile and clothing manufacturers) noted the
barriers above and called on the European Commission to ensure that China had
addressed all these barriers in accordance with their WTO obligations. The TFIA
would also argue that these barriers must be dealt with to the satisfaction of not only
Australia but also the WTO membership before any FTA could begin between
Australia and China.

Cooperation between Australia and China

The TFIA does not wish to seem solely opposed to any agreement as this would be a
ridiculous stance to take. In the course of consulting with TFIA members several
raised the potential for the agreement and hence for the Governments in this
feasibility study to develop ways and means of integrating the two industries to
achieve a win for TCF rather than having to justify a less that desirable outcome in
TCF by a greater gain in a different Australian industry or service sector.

The TFIA would also note that many companies are already successfully moving into
China as producers, sellers or service providers and this should continue under the
Trade and Economic Framework. However, this remains the exception rather than

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the norm and all have found the path exceptionally difficult to take, particularly when
looking at the ease with which this can be undertaken in Australia.

One company noted that the

“….Australian Government must secure “channels to market” for
Australian manufacturers including within market assistance”.
This could be undertaken using the existing Austrade resources and through
additional assistance as part of any agreement to offset the costs of establishing a
presence in the Chinese market or lower thresholds for programs such as EMDG.

Another option may be to offer some type of Manufacturers Concession Scheme

under the agreement. Under this scheme companies would receive duty credits for
undertaking TCF value added manufacturing processes. These credits would then
be redeemed for preferential entry of other TCF goods under the agreement provided
the manufacturer met the necessary RoO. I.e., The credits can be used to offset the
phase duty rate that would apply to Chinese product. An extension to this model
would be to enable the credits to be sold to other companies and therefore promote
further interaction.

This type of approach works to encourage bi-lateral investment and maintains

Australia’s manufacturing sector while allowing improved duty access for Chinese
imports. With the addition of RoO requirements it would also promote consumption
along the supply chain compounding the gains already being made. Such schemes
have operated previously in Australia.

The TFIA believes that such a system would not contravene WTO rules on subsidies
but would accept that the Government must investigate this aspect. The industry
would be more than happy to work closely with negotiators from both countries on
developing such a concept fully compliant with WTO guidelines to be included if an
agreement is negotiated. The TFIA has already met with its Chinese counterparts in
early 2004 and expects to continue regular dialogue with them, which can
complement the work of Government.

What does the TFIA consider to be a market economy and level playing field?

The TFIA considers the issue of the Chinese economy the most critical aspect of any
FTA and disagrees strongly with the approach advanced by DFAT officials at the
recent roundtables. At these meetings it was indicated that the issues around
whether China is or isn’t a market economy relate only to the anti-dumping aspects
and the rest of the Chinese economy should be viewed in a different light. There can
only be one test of a country’s economy. It is the essence of the system of anti-
dumping.

The Chinese TCF market as a whole does not exhibit the hallmarks of a market
economy for anti-dumping or any other mechanism and the TFIA and its members
remain opposed to any FTA for as long as Chinese companies have an unfair
advantage over the Australian economy. Providing other matters such as addressing
non-tariff barriers are dealt with appropriately, the TFIA could support a Free Trade
Agreement if it was agreed that under the agreement suggoracy could be applied for
anti-dumping activities.

As part of its survey the TFIA asked member companies to nominate which
characteristics they felt China needed to display to be considered a market economy

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and for which a level playing field would hold. Theses are listed below in priority as
recorded by the survey:
• Transparency in pricing structures and supply chain relationships;
• Full adherence with its WTO obligations – we would contend that this is
contingent on all WTO members agreeing this rather than just Australian
unilaterally declaring that China was a market economy;
• Prices and costs to be presented against recognised international
benchmarks;
• Implementation of an effective and real competition policy and enforcement
body;
• Adoption of international accounting standards;
• Demonstration of market economy characteristics in both Chinese social and
economic legislation;
• Removal of state control and influence regarding resource allocation; and
• Implementation of a free floating currency

Many of these characteristics are complex and require a significant amount of reform
within the Chinese economy. Without such reforms particularly those relating to
pricing and cost structures, Australian companies will be unable to clearly understand
the markets they are selling into. Likewise, declaring China a market economy for the
purposes of anti-dumping would leave Australian companies with little right of remedy
under the FTA.

The Australian industry is prepared to discuss entry into Free Trade Agreements
provided that the agreement sets up a level playing field. The two most recent
agreements Australia has conducted with Thailand and the United States have in the
mind of many in industry failed to do this. In respect to Thailand many non-tariff
barriers will remain in place. Likewise the insistence by the United States to include
Yarn and Fibre forward RoO effectively rules out most Australian TCF products from
entering the US market at concessional rates. While a margin of only 2% is given to
the United States many in the industry still argue that the US got the better deal. The
industry would be decimated should a similar issue arise with a free trade agreement
with China.

The industry also takes issue with the contention by several DFAT staff that such
issues could be managed in any agreement, presumably referring to specific
requirements or requests for China under the FTA. The industry would not place
significant faith in the ability of the characteristics outlined above to be managed by
any agreement. The issues are very broad and integrated deeply into the Chinese
economy and culture. While rules could be put in place to create a competition policy
and authority and to require the use of transparent internationally comparable
accounting practices there would remain questions over the extent to which could be
enforced.

As such the TFIA and its members remain opposed to any FTA between Australia
and China until such time as the industry considers there is a level playing field
between the two countries. With many companies already operating or engaging in
China by choice it would seem prudent for Australia to continue in this fashion until
such time as the international community considers China to have attained market
economy status.

Rules of Origin, Safeguards and Anti-Dumping considerations

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Related closely to the issue of whether China is a market economy are those around
Rule of Origin (RoO), Safeguards and Anti-dumping considerations. At the broadest
level the TFIA would expect any FTA to maintain TCF specific safeguard provisions
and Australia’s anti-dumping provisions as requested by the Australian Industry
Taskforce on Anti-Dumping.

At this stage the TFIA has not undertaken a detailed study of the impact of an
agreement on every item covered under the textile and clothing headings of the Tariff
code. However, we can note that in general terms any agreement should provide for
safeguard mechanisms to come into play dependent upon certain triggers. These
triggers could be linked to any number of outcomes, such as import growth, domestic
industry contraction, employment etc.

In considering this need the TFIA would suggest that the Governments look closely at
the safeguards clause provided in the United States-Singapore Free Trade
Agreement (Article 5.9: Bilateral Textile and Apparel Safeguard Actions). This broadly
allows for the either the suspension of further tariff rate reductions provided under the
agreement or an increase in the rate of duty on the good to no higher than the lesser
of the current MFN rate or the MFN rate that applied on entry into force of the
agreement.

The TFIA will provide more detail on these safeguard measures should negotiations
begin on any agreement between Australia and China.

Any agreement would need to maintain Australia’s existing anti-dumping mechanisms

including the Economies in Transition provisions that currently exist. Regardless of
the status of the Chinese economy such provisions must remain, as they should in all
of Australia’s bi-lateral agreements to prevent transshipment from other economies in
Transition. The TFIA and its members would not support any agreement that
weakened the right of companies to take remedial action through this method.

The TFIA would seek to ensure that the RoO implemented under this agreement
follow those under the Australia-Singapore Free Trade Agreement. These are
centred on the concept of final process of manufacture and a minimum member state
local content of 50% incurred by the principal manufacturer of the good.

It is also important in discussing RoO to understand where the World Customs

Organisation (WCO) deliberations are heading in respect of international RoO for
non-preferential trade. The TFIA’s understanding is that this process while currently
being applied for non-preferential trade will likely provide clear indicators for
preferential trade rules. The TFIA has been involved in this WCO process for a
considerable number of years and believe that current stalling is due to the complexity
and conflict amongst member nations as to the appropriate rules for particular
products, not the least of which are textile and clothing related goods. The final
outcome of this process, if indeed there is one, may provide additional information to
allow extended investigation and analysis in this area.

Conclusion / TFIA recommendations

The TFIA wishes to make two additional comments in respect of this study and any
potential FTA between Australia and China. Firstly, a common criticism levelled at the
Government over the last two free trade agreements is the lack of transparency of
negotiations. While the TFIA respects the need to treat these negotiations sensitively
or agreements may not be reached it does believe that industry should be consulted

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comprehensively during discussions. Most importantly the Federal Government must

make clear to industry its walk away strategy and hence its minimum necessary
gains for the agreement to work.

Finally, in respect to the modelling to be undertaken by DFAT and their Chinese

counterparts for this study the TFIA would ask that industry be closely involved in all
aspects of this work. This could be done through additional workshops and
roundtables related specifically to the modelling and through the ability for industry to
comment on preliminary results. This approach allows companies and the industry to
note early on whether the model is making the right assumptions about the sector and
assist the modellers to address them. The end result is a more robust model and
assessment of any potential agreement.

Ahead of concluding the TFIA wishes to quote one of the respondents to the survey
as it provides a good assessment and summary of the state of feeling in the industry
towards the Federal Government’s policy on Free Trade Agreements. The
respondent noted
“[We are] a supplier of high quality, high value added fabrics to local
and export customers….We have an excellent distribution network.
Where we manufacture is unimportant. Our preference is to
manufacture locally however if Government policy makes this difficult
we will switch to importing.”

The Government needs to be mindful that many of the larger companies in the TCF
sector view this as a potential option. The impact that the removal of a large
integrated manufacturing plant can have on not only the regional economic area but
for Australia has been well documented.

In concluding therefore the TFIA recommends:

• An FTA be opposed between Australia and China until such time as Australian
industry considers that there is a level playing field between the two
economies. To undertake negotiations any sooner would be to the significant
detriment of the Australian TCF industry;
• China must agree and show proof of reducing all identified non-tariff barriers.
This should also be done in respect to Australian goods faster than that
required under the WTO ascension document;
• Australian tariffs should only be phased in step with the current Government
policy concerning tariffs post 2005. The industry rejects outright any
immediate zero for zero reductions;
• Further given China’s size compared with that of Australia Chinese tariffs
should be phased at a steeper path than Australia;
• Any agreement should consider measures and methods that seek to integrate
manufacturing sectors of each country. This could be done through a
manufacturers concession system;
• Any agreement must contain specific safeguard measures for the TCF sector
and a robust anti-dumping system;
• The TFIA believes that a regional threshold approach at the principal
manufacturer level is the best form of Rules of Origin for an FTA;
• The Federal Government must make public its “walk away conditions” ahead
of formal negotiations occurring; and
• All economic modelling undertaken for this feasibility study must be provided
for industry analysis and comment ahead of it being formally presented to the
Government.

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Appendix – Survey of TFIA members – Questionnaire and results

Company Participation

The survey had a 36% return rate, which is a good outcome for a survey. Those
companies responding provided a good cross section of the Australian TCF sector
including textile and clothing manufacturers, retailers, distributors and importers.
They were also a mixture of large companies with operations globally and smaller
Australian based companies. Reflecting the make-up of the TFIA’s membership just
under 50% of respondents were involved in the manufacture of textiles.

The companies that responded to the survey employed 10,263 persons this is 15% of
the total ABS recorded labour force and suggests that the survey results can be used
to assess the direction and mood of the industry.

Commercial impact

When asked if duty-free access to China would increase sales to China 54% of
companies indicated that it would not. Of the 38% who said yes 80% indicated that
the increase would be between $500,000 to $5 million. The remaining 20% indicated
that extra sales would be less than $500,000. This result likely reflects the large
number of non-tariff barriers that exporters to China face, so that even with an
immediate reduction of Chinese tariffs to zero gains remain limited.

The reverse side of the question sought company responses on the net impact of
duty-free entry of Chinese goods (Australian tariffs reach zero immediately). The
term net was used to allow companies to account for potentially cheaper inputs and
cheaper competitive goods. Not one positive response was received. The majority
(54%) of companies indicated that it would have a net impact of minus 20% or more.
8% saw no net impact.

The next two questions focused on those companies already producing part of their
product or product ranges in China. Of those companies already engaging in this
diversified production the overwhelming majority (89%) indicated that it would
increase this activity. However among those companies that were not already
producing in China opinion was evenly split as to whether an FTA would make them
begin production in China.

Exports to China

Only 23% of respondents are currently exporting product to China while none of the
respondents had previously been exporting to China. The survey asked respondents
to nominate which barriers they had faced in exporting to China. The most common
barriers noted were tariffs, pricing issues and Intellectual Property issues. Other
barriers felt to be significant included burdensome bureaucratic processes and high
seller concentration in Chinese domestic markets. In addition to those listed on the
survey respondents also noted poor payment from export debtors, low labour costs,
lack of efficient and accessible logistics and the recently high exchange rate.

A subsequent question asked companies to nominate which of the identified barriers

would have the most significant short-term benefit for them. The majority of
respondents indicated improved pricing transparency as the most significant with
tariffs also rated highly.

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Australia – China Free Trade Agreement Feasibility Study

Market Economy

The survey asked respondents to nominate those characteristics they felt China
would need to address to be considered a market economy. Of the seven
characteristics listed transparency, adherence by China to its WTO obligations and
adoption of international accounting standards and benchmarks were noted as most
significant for China to be considered a market economy. In addition to those listed
several responses also noted the importance of having a free-floating currency and
the full removal of subsidies.

Investment impact

When asked about the impact on companies investment decisions from any
Australia-China FTA all but one respondent indicated a negative impact. He one
respondent indicated that it would have a positive impact on their investment
decisions of between 10% to 15%.

Of those indicating a negative impact 60% noted that they would revise down their
investment decisions by 20% while a further 20% noted a reduction of between 10%
to 15%.

Two respondents to the survey did not record an impact on their investment
decisions.

Employment impact

Again all but one respondent indicated that an FTA would have a negative impact on
their employment decisions. The one positive response saw a 10-15% increase in
their employment decisions.

Of those who responded negatively 58% indicated that their employment decisions
would fall by 20% or more under an FTA. The remaining 42% saw a decrease of
between 10%-15%. Two respondents indicated no impact.

Position Statements

To conclude the survey respondents were presented with 6 positions for the TFIA to
take. Each respondent could indicate that they agree, disagree or maintain a neutral
stance regarding the statement.

a. The TFIA remain opposed to any FTA between Australia and China until
such time as the industry considers there is a level playing field between
the two countries. To undertake any negotiation sooner would be to the
significant detriment of the Australian TCF industry.

69% of responses agreed with this statement while only 8% disagreed. The
remaining 23% took a neutral stance towards the statement. This produced a
net agreement of 61%.

b. Under any agreement the TFIA would only support a phased reduction
in TCF tariffs such that zero tariffs are not reached until 2015 (assuming
passage of the current reform proposals of post 2005 arrangements).

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Australia – China Free Trade Agreement Feasibility Study

The numbers remained the same as in a. above with a net result of 61% of
respondents agreeing with it.

c. Given the relative scale of the Chinese industry to the Australian

industry Chinese TCF tariffs should be duty free immediately the
agreement comes into effect while Australian tariffs are phased.

In respect to this statement 62% of respondents agreed while 23% disagreed

with the statement. The remaining 15% maintained a neutral stance in
respect to this position.

d. Under any agreement China must adopt the same levels of OH&S,
product and labour standards as faced by the Australian TCF industry.

In response to this statement 54% responded neutrally. However no

respondents disagreed with this statement.

e. Any agreement must include stringent requirements relating to Rules of

Origin and Safeguard mechanisms

Of all the statements put to the members through the survey this had by far
the most support. 85% of respondents indicated that any agreement must
include strong and stringent RoO and Safeguards. The remaining 15%
indicated a neutral response with none disagreeing with the statement.

f. The Federal Government ahead of the commencement of negotiations

must make public its “walk away” conditions and strategy.

An important point for many 62% of respondents agreed that the Federal
Government must make its “walk-away” conditions known to the public and
industry. This would improve the accountability of the Government and its
negotiating team in respect of all aspects.

Additional comments:

“FTA start date should be made later than 2015”

“Apart from tariff preference for exporters to China, the Australian government must
secure "channels to market" for Australian manufacturers including within market
assistance.”

“FTA tariff preferences greater than those under current Post 2005 legislation on
clothing imports should only be supported if introduced via a controlled process
through Australian manufacturers so that: (A) Impact on Australian manufacturing
was self-balancing; (B) Benefit to both Chinese and Australian industry; and (C)
controlled. This could be done by FTA access being achievable only to the extent that
credits earned by local manufacturing activity in Australia [allow].”

“As China already has a 50% plus share of the Australian market future tariff phasing
should conform to [the] post-2005 plan”

“[We are] a supplier of high quality, high value added fabrics to local and export
customers……we have an excellent distribution network. Where we manufacture is

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Australia – China Free Trade Agreement Feasibility Study

unimportant. Our preference is to manufacture locally however if Government policy

makes this difficult we will switch to importing.”

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